Reliance Power plans $3.5 bn IPO

Reliance Power Ltd, a company of the Reliance-Anil Dhirubhai Ambani Group or R-ADAG, is planning an initial public offering (IPO) aiming to raise $3.5 billion, or nearly Rs14,000 crore, selling shares equivalent to around 30% stake, two persons close to the plan said.

If the share sale goes through, it could be India’s biggest IPO ever, ahead of a float by realty firm DLF Ltd earlier this year.

Reliance Power, a unit of the Bombay Stock Exchange-listed Reliance Energy Ltd, has been valued at $11 billion, an investment banker said, asking not to be named.

Shares of Reliance Energy rose 7.89% to end Friday’s trading at Rs1,205.50 each—close to its highest traded price of Rs1,220—with a market capitalization of about Rs27,550 crore. BSE’s 30-share indicative Sensex expanded 0.8% to 17,291.10 points.

Reliance Energy, led by billionaire businessman Anil Ambani, declined comment. “We do not wish to comment on market speculation,” a spokesman said.

Reliance Power is expected to file the prospectus with market regulator Securities and Exchange Board of India or Sebi next week. Kotak Mahindra Capital Co. and the local unit of JPMorgan Chase & Co. are among the investment banks with a mandate for the sale.

Reliance Power, earlier known as Reliance Energy Generation Co. Ltd, won the mandate to develop a 4,000MW ultra mega power project at Sasan in eastern Madhya Pradesh this June. The so-called ultra mega power project is estimated to cost around Rs20,000 crore.

It could not be immediately ascertained which of Reliance Energy’s other power projects and assets would be farmed off to its unit Reliance Power. About 60% of Reliance Energy’s Rs6,500 crore revenues in fiscal 2007 came from its power business. Stock broking firm Prabhudas Liladhar had estimated the enterprise value of the power business at Rs1.02 trillion in a recent report.

The parent company had stated in the past that it has plans of setting up 20,000MW capacity by 2015. Some among the new projects could be handled by Reliance Power, an R-ADAG official said, preferring to remain unnamed.

Apart from Sasan, Reliance Energy is building a 1,200MW power plant at Rosa in Uttar Pradesh that it bought from the Aditya Birla Group last year and is also developing a 4,000MW project at Shahapur in Maharashtra. Other projects include the 7,800MW Dadri power project that has been mired in controversy over the supply of fuel from Reliance Industries Ltd, which is run by Anil Ambani’s elder brother, Mukesh.

The capacity of Reliance Energy’s Dahanu power station is being raised to 1,700MW from the current 500MW. The Anil Ambani firm also distributes electricity in parts of Mumbai city.

The share sale in Reliance Power is part of a plan to restructure Reliance Energy into three distinct businesses in power, real estate and infrastructure, sectors in which the Mumbai firm is consolidating its presence. Each of these businesses could be listed at a later date, the R-ADAG executive said. Reliance Energy’s engineering and construction business accounts for two-fifths of its revenues and the company has a small presence in real estate, with an 80-acre development near Hyderabad’s upcoming airport.

A sector expert said the proposed share sale and restructuring could be driven by easing finances for the mega projects. “It looks like they are putting their generation projects into one company, which would make it easier for them to raise money for these capital-intensive projects,” said Arvind Mahajan, executive director and head (energy, government and infrastructure) at the local unit of consulting firm KPMG International.

It is not yet clear whether Reliance Energy would finally emerge as the holding company for all the power projects, Mahajan added. “As of now, it looks like it could be a three-tier structure: with individual projects being held by special purpose vehicles, which in turn is held by the company (Reliance Power) and in turn the group holding company (Reliance Energy),” he said.